A knowledge bank of information and articles relating to water infrastructure and water resources in Indonesia. Presented by PT MS Water.

Tuesday, January 18, 2005

Guarantee facilities to be provided for investors

Source: The Jakarta Post

The government is mulling the provision of guarantee facilities to help mitigate the risks for investors in developing the country's infrastructure, in particular the power and toll road sectors -- a move aimed at reducing uncertainty.

Minister of Finance Yusuf Anwar said on Monday the government would work with the World Bank and the Asian Development Bank (ADB) to explore specific guarantee instruments in selected projects offered at the Indonesian Infrastructure Summit.

"We are going all out to restore investor confidence for infrastructure development. We will establish a framework for risk mitigation and sharing to attract investment," said Yusuf during the summit on Monday.

The government would, at least for now, outline its policy regarding risk sharing in two key infrastructure facilities; power and toll roads.

In the power sector, such a guarantee will cover the construction completion risks, in which the government will cover any costs resulting from a delay because of a mix-up on the part of the government. The guarantee would be in the form of contractual provisions and/or other commercial instruments.

Risks associated with power supply would be mitigated through technical assistance contracts and commercial insurance coverage.

The government will also be exploring options to cover risks associated with a rise in fuel costs. However, it will only examine the risks on a case by case basis.

Concerning political, regulatory and currency risks, the government will consider bearing those costs, except in the case of force majeure.

Regarding efforts in mitigating the risks for toll road investment, ways are being considered to help resolve land acquisition problems -- which have long been a sensitive issue -- including setting up a fund-gathering mechanism in which the government may acquire the land for toll road projects using such funds.

Under this scheme, the company will repay to the government the cost of the land, once it is awarded a contract to develop a toll road project -- in some cases, the government will allow the company to repay it over an extended period.

In terms of land price, the government is also mulling options to cover such a risk, in which it will guarantee the agreed price for the land. If the eventual price is higher than the agreed one, then the government will cover the price difference.

Other risk-mitigation efforts is the possibility the government will undertake specific action under special circumstances, where land conflicts involve the development of crucial public works.

Elsewhere, Yusuf also said the World Bank and the ADB would likely agree to provide about 10 percent of the financing needs for the country's massive infrastructure projects, which is estimated to be about US$150 billion; primarily on projects related to water sanitation.

Yusuf added that the two agencies might provide softer terms and conditions for project loans other than infrastructure.